Residential and rural property update - September 2020 – 3 / 4 观点
With the much-reported flight to the country still in full flow, it's worth remembering that a significant Stamp Duty Land Tax (SDLT) saving can be had for a buyer looking to make that move, if they can find the right rural property.
A freehold residential property purchased by an individual as a replacement for their main dwelling for £5 million would create an SDLT liability of £513,750. However, if any part of that property was not residential and it was deemed mixed-use, then that SDLT liability would drop to £239,500 – a saving of £274,250. This can be particularly important for many country homes or rural estates being sold with land which will be being put to various uses, some of which may be commercial and therefore non-residential for the purposes of SDLT.
Section 116 of the Finance Act 2003 includes within the definition of "residential property" any land that "… is or forms part of the garden or grounds …" of a building that is used or suitable for use as a dwelling. Therefore, the question for any buyer of a rural estate or country home is whether any of the surrounding land does not constitute the garden or grounds of the dwelling.
For many years, there has been considerable uncertainty among professionals on this point. However, the First-tier Tribunal considered this issue last year in Hyman v HMRC , a decision that was followed earlier this year with Myles-Till v HMRC . In addition to these two cases, HMRC has issued guidance on what it considers to be "garden and grounds" when defining a residential property.
While the question has still not been definitively answered, when looking to answer that question, we now know the following:
HMRC's approach to what it considers to be gardens and/or grounds is a lot more nuanced than was previously understood. Our experience is that HMRC is raising an increasing number of queries on SDLT returns where mixed-use has been claimed and we anticipate this will continue over the next few years.
If there is any doubt regarding whether the mixed-use rates can be applied, then the approach taken can be disclosed to HMRC at the point of filing the return. By disclosing this to HMRC, you may be inviting them to investigate further, but it could help to avoid penalties being levied against the buyer should HMRC then successfully challenge the SDLT paid.
If you have any questions about Stamp Duty Land Tax, please reach out to a member of our Residential and Rural Property group.